The Enigma of Economic Growth and Environmental Degradation

Economic growth is essential for having a prosperous society, achieving improved standards of living, technological advancements, and better employment opportunities. It is an essential for developing economies, where most of the policy exercises are focused around attaining higher levels of economic growth. However, this growth often comes at a significant environmental cost, leading to pollution, resource depletion, and biodiversity loss. As countries strive for development, a pressing question emerges: Can economic growth and environmental sustainability coexist?

Well, this isn’t a novel question or a recent realisation for economists. Back in 1920, a prominent economist A.C Pigou argued for a tax to be imposed for internalising the negative externalities (negative externalities refer to pollution or environmental losses), as the market price of a particular good or service doesn’t take into account the impact on environment which were incurred during  the production process. And in 1960, R. Coase stressed the importance of property rights and the possibility of bargaining power in dealing with the problem of externalities. If Pigou had argued for government intervention then Coase advocated for a market oriented solution to deal with the pollution problems.

The economists in the 1990s employed Kuznet’s inverted U curve to understand and tackle the environmental problems (You may read this paper for better understanding). The Environmental Kuznets Curve (EKC) hypothesis suggests that the relationship between economic growth and environmental degradation follows an inverted U-shape. In the early stages of economic growth, environmental degradation increases as industries expand and natural resources are exploited. However, as income levels rise and societies become more aware of environmental issues, they demand cleaner technologies and stricter environmental policies, leading to a decline in environmental degradation.

Stages of the EKC:

Stage 1: Low-income economies prioritize economic growth, often ignoring environmental concerns, thereby intensifying pollution levels and environmental degradation.

Stage 2: As income levels rise, environmental awareness increases, and societies begin investing in cleaner technologies.

Stage 3: High-income economies experience reduced pollution levels as sustainable practices and regulatory frameworks take effect.

While the EKC presents a hopeful narrative, critics argue that it oversimplifies the complexity of environmental degradation and assumes that all countries will eventually follow the same trajectory.

The N-Shaped Curve: A Refined Perspective

An extension of the EKC, the N-shaped curve offers a more nuanced understanding of the relationship between economic growth and environmental degradation. According to this theory, after an initial decline in environmental degradation (as predicted by the EKC), a resurgence of environmental harm may occur at very high levels of economic growth. This second wave of degradation is often attributed to over-consumption, increased waste production, and the limits of technological advancements to mitigate environmental damage.

Stages of the N-Shaped Curve:

Phase 1: Rapid industrialization leads to increased pollution and resource exploitation.

Phase 2: Technological advancements and policy interventions reduce environmental harm.

Phase 3: Excessive consumption and unsustainable practices reintroduce environmental challenges, forming the upward slope of the N-shaped curve.

This conflict between environment and development can’t just be dealt with by reducing it to a binary trade off question. It requires a holistic understanding of the problems caused by the rampant development activities and it also requires solutions developed through collaboration among all the stakeholders involved. The publication of Brundtland Report  in 1987, marked the emergence of the sustainability discourse.  This has been followed by a range of deliberations and academic labour in manifesting these ideals into actionable guidelines. Following are the major schools of sustainability which guide in making our choices and priorities clear while formulating policies.   

Schools of Sustainability: Varying Perspectives

1. Weak Sustainability

According to the theory of weak sustainability, human-made capital (infrastructure, technology) can replace natural capital (air, water, and forests). Proponents contend that advancements in technology will mitigate the loss of natural resources as economies expand. Critics point out that certain types of natural capital, such as climate stability and biodiversity, cannot be replaced. However, weak sustainability makes the assumption that environmental problems can eventually be resolved by economic growth through efficiency and innovation.

2. Strong Sustainability

In contrast, the theory of strong sustainability highlights the need to protect natural wealth because it cannot be replaced. This school of thought supports conservation initiatives, stringent environmental laws, and an emphasis on renewable resources. Strong sustainability implies that environmental deterioration is irreversible after a point and needs to be controlled at all costs.

3. Ecological Modernization

Ecological modernization bridges the gap between weak and strong sustainability by promoting the idea that technological innovation and policy reforms can drive sustainable development. It asserts that economic growth, if managed correctly, can lead to environmental improvements. Governments and industries can adopt cleaner technologies and implement policies that reduce pollution while promoting economic progress.

Balancing Growth and Sustainability:  What lies ahead?

To strike a balance between economic growth and environmental sustainability, policymakers must adhere to the following:

• Promote Green Technologies: Encourage research and investment in renewable energy, waste management, and eco-friendly technologies.
• Sustainable agriculture practices: A shift from chemical intensive input driven agriculture practices to a system that contributes to food security along with addressing concerns of the environment.
• Encourage Sustainable Consumption and Production: Educating consumers about the environmental impact of their choices and promoting sustainable lifestyles is an integral part. They need to be pushed for in addition  to enacting efficient regulations and innovations. 
• Foster International Collaboration: Environmental problems transcend national borders, necessitating global cooperation in addressing climate change, deforestation, and biodiversity loss.

Conclusion

Sustainability of the environment and economic growth do not have to necessarily be of a conflicting nature. It is clear by examining several sustainability schools, the Environmental Kuznets Curve, and the N-shaped curve that a careful, well-rounded strategy can bring about prosperity without endangering the environment. Societies are now under an obligation to create a sustainable future where environmental health and economic prosperity co-exist peacefully by welcoming innovation, enforcing laws, and encouraging international cooperation.

We live in times, where AI has become an integral part in most of our affairs, so much so that a discourse is emerging on taxing AI.  Therefore it’s indispensable to know AI’s ‘views’ on this debate. Chat GPT has the following to say, 

“In my view, achieving true sustainability requires a hybrid approach—leveraging technology while acknowledging the limits of natural capital and respecting ecological boundaries. ????”

In my comprehension, understanding of development should inherently include not only the well being of the individual consumer but it should also include the wellbeing of the environment, as the latter is an important determining factor of the former.